Cadista Holdings Inc. - FORM 10-Q

Attached files

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EX-10.1 - EXHIBIT 10.1 - Cadista Holdings Inc.	v358365_ex10-1.htm
EX-32.1 - EXHIBIT 32.1 - Cadista Holdings Inc.	v358365_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - Cadista Holdings Inc.	v358365_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - Cadista Holdings Inc.	v358365_ex31-1.htm
EXCEL - IDEA: XBRL DOCUMENT - Cadista Holdings Inc.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________________ to ___________________________

Commission File No.: 000-54421

CADISTA HOLDINGS INC.

(Exact name of registrant as specified in its charter)

Delaware		31-1259887
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

207 Kiley Drive
Salisbury, Maryland		21801
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (410) 860-8500

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to file such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer ¨

Non-accelerated filer	x	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of November 13, 2013 the registrant had 117,797,180 shares of common stock issued and outstanding.

CADISTA HOLDINGS INC.

INDEX

		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (Unaudited)	1

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative And Qualitative Disclosure About Market Risk	24

Item 4.	Controls and Procedures	24

PART II. OTHER INFORMATION		25

Item 6.	Exhibits	25

Signatures		26

	i

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CADISTA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(All amounts in thousands United States Dollars, unless otherwise stated)

	September 30,		March 31,
	2013		2013
ASSETS

Current assets:
Cash and cash equivalents		3,010		5,615
Accounts receivable		20,738		22,063
Due from related parties		25,839		10,821
Inventories		29,063		23,431
Prepaid expenses and other current assets		782		630
Deferred tax assets (current)		5,344		4,644
Total current assets	$	84,776	$	67,204

Restricted cash		25		27
Loan to related party		20,000		20,000
Property, plant and equipment, net		20,624		19,427
Intangible assets, net		1,079		1,211
Total assets	$	126,504	$	107,869

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		5,060		3,734
Due to related parties		6,898		2,193
Other current liabilities		2,584		4,139
Dividend payable		66		66
Total current liabilities	$	14,608	$	10,132
Deferred tax liabilities(non-current)		1,543		1,254
Total liabilities	$	16,151	$	11,386
Commitments and contingencies		—		—
Stockholders’ equity
Equity shares at $ 0.001 par value		118		118
120,000,000 shares authorized; issued and outstanding – 117,797,180 shares as of September 30, 2013 and March 31, 2013
Additional paid-in capital		38,755		38,755
Accumulated surplus		71,480		57,610
Total stockholders’ equity	$	110,353	$	96,483
Total liabilities and stockholders’ equity	$	126,504	$	107,869

(See accompanying notes to the condensed consolidated financial statements.)

	1

CADISTA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(All amounts in thousands United States Dollars, except per share data, unless otherwise stated)

	Six months ended September 30,				Three months ended September 30,
	2013		2012		2013		2012
Net revenues	$	50,205	$	57,177	$	24,548	$	27,303
Cost of revenues		23,590		20,225		11,538		9,731
Gross profit		26,615		36,952		13,010		17,572

Operating costs and expenses:
Research and development expenses		9		250		-		250
Selling, general and administration		3,753		2,267		1,913		1,150
Depreciation and amortization		1,084		860		542		446

Total operating costs and expenses		4,846		3,377		2,455		1,846

Operating income		21,769		33,575		10,555		15,726
Other income (expense), net		726		240		390		136
Income before income taxes		22,495		33,815		10,945		15,862
Income taxes		8,625		12,904		4,213		6,057
Net income	$	13,870	$	20,911	$	6,732	$	9,805

Net income per common share
Basic	$	0.12	$	0.18	$	0.06	$	0.08
Diluted	$	0.12	$	0.18	$	0.06	$	0.08

(See accompanying notes to the condensed consolidated financial statements.)

	2

CADISTA HOLDINGS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(All amounts in thousands United States Dollars, unless otherwise stated)

	Six months ended September 30,
	2013		2012
Cash flows from operating activities:
Net income	$	13,870	$	20,911
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		1,084		860
Deferred income taxes		(411)		292
Provision for bad debts		112		2
Changes in operating assets and liabilities, net
Decrease in accounts receivable		1,214		1,284
(Increase) in inventories		(5,632)		(3,512)
(Increase) / Decrease in dues from related parties		(18)		14
Increase/(decrease) in dues to related parties		4,705		(595)
(Decrease)/Increase in accounts payable and other current liabilities		(1,016)		230
(Increase) in prepaid expenses and other current assets		(152)		(134)
Net cash provided by operating activities	$	13,756	$	19,352

Cash flows from investing activities:
Purchase of property, plant and equipment	$	(1,363)	$	(4,514)
Short term investments (term deposit)		-		(5,000)
Loan to related party		(15,000)		-

Net cash (used in) investing activities	$	(16,363)	$	(9,514)

Cash flows from financing activities:

Proceeds from short term borrowings, net	$	-	$	-

Net cash provided by financing activities	$	-	$	-

Net change in cash and cash equivalents	$	(2,607)	$	9,838

Cash and cash equivalents (including restricted cash)
Beginning of the period	$	5,642	$	2,169
End of the period	$	3,035	$	12,007

Supplementary cash flow information
Cash paid during the period for interest/commitment charges	$	-	$	43
Cash paid during the period for tax, net of refunds	$	10,246	$	11,928

(See accompanying notes to the condensed consolidated financial statements)

	3

CADISTA HOLDINGS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(All amounts in thousands United States Dollars, except earnings per share figures, unless otherwise stated)

1	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of Preparation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America ("GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for the full fiscal year.

These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes thereto for the year ended March 31, 2013 included in the Company's Annual Report on Form 10-K, filed with the Securities and Exchange Commission on July 15, 2013. The balance sheet as at March 31, 2013 presented in this report has been derived from audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. Amounts presented in the financial statements and footnotes are rounded to the nearest thousands, except per share data and par values. Unless the context requires otherwise, references in these notes to the “Company,” “we,” “us” or “our” refers to Cadista Holdings Inc. and its subsidiary, Jubilant Cadista Pharmaceuticals Inc.

Certain reclassifications, regroupings and reworking have been made in the condensed consolidated financial statements of the prior period to conform to the classifications used in the current period. These changes had no impact on previously reported net income or stockholders’ equity.

b) Recent Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, “Comprehensive Income (Topic 220): Reporting of Amounts Reclassified out of Accumulated Other Comprehensive Income”. This amended guidance requires an entity to report, in one place, the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income. Reclassifications must be disclosed if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. The guidance is effective prospectively for reporting periods beginning after December 15, 2012. The guidance in this topic does not apply to the Company as the Company has no items of Other Comprehensive Income in any period presented and in such cases the Company is excluded from reporting other comprehensive income or comprehensive income.

In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update 2012-02, “Intangibles – Goodwill and Other (Topic 350): Testing Indefinite Intangibles Assets for Impairment,” which amended the guidance in ASC 350-30 on testing indefinite-lived intangible assets, other than goodwill, for impairment allowing an entity to perform a qualitative impairment assessment. If the entity determines that it is not more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of indefinite-lived intangible assets for impairment is not required and the entity would not need to calculate the fair value of the asset and perform a quantitative impairment test. In addition, the standard did not amend the requirement to test these assets for impairment between annual tests if there is a change in events or circumstances; however, it revised the examples of events and circumstances that an entity should consider in interim periods, which are identical to those assessed in the annual qualitative assessment described above. ASU 2012-02 was effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption being permitted. The Company believes that the adoption of this standard will not have a material impact on its consolidated statements.

	4

c) Revenue Recognition

Revenue from sale of goods is recognized when significant risks and rewards in respect of ownership of the products are transferred to the customer and when the following criteria are met:

§ Persuasive evidence of an arrangement exists;

§ The price to the buyer is fixed and determinable; and

§ Collectability of the sales price is reasonably assured.

Revenue from sale of goods is shown net of provisions for estimated chargeback, rebates, returns, cash discounts, price protection reserve and other deductions.

The Company participates in prime vendor programs with a government entity whereby pricing on products is extended below the wholesale list price. This government entity purchases products through wholesalers at the lower prime vendor price, and the wholesalers charge the difference between their acquisition cost and the lower prime vendor price back to the Company. The Company determines its estimates of the prime vendor chargeback primarily based on historical experience regarding prime vendor chargebacks and current contract prices under the prime vendor programs. Accruals for chargebacks are reflected as a direct reduction to revenues and accounts receivable.

The Company sells its products directly to wholesalers, retail drug store chains, drug distributors, mail order pharmacies and other direct purchasers. The retail drug store chains also purchase our products through the wholesalers in the event of a stock out at a particular pharmacy store. The Company often negotiates product pricing directly with retail drug stores that purchase products through the Company’s wholesale customers. In those instances, chargeback credits are issued to the wholesaler for the difference between the invoice price paid to the Company by our wholesale customer for a particular product and the negotiated contract price that the retail drug store pays for that product to the wholesaler. In addition, the retail drug store charges the Company for the difference between the prices paid to the wholesaler and the negotiated contract price with them.

The Company’s chargeback provision and related reserve varies with changes in product mix, changes in customer pricing and changes to estimated wholesaler inventories. The provision for chargebacks also takes into account an estimate of the expected wholesaler sell-through levels to indirect customers at contract prices. Historically, the Company has validated the chargeback accrual annually through a review of the inventory reports obtained from its largest wholesale customers. Commencing with the Company’s 2012 fiscal year, the Company conducts such reviews quarterly based upon such inventory reports. This customer inventory information is used to verify the estimated liability for future chargeback claims based on historical chargeback and contract rates. These large wholesalers represent 85% - 90% of the Company’s chargeback payments. The Company continually monitors current pricing trends and wholesaler inventory levels to ensure the liability for future chargebacks is fairly stated. Accruals for these chargebacks are reflected as a direct reduction to revenues and accounts receivable.

The Company enters into revenue arrangements to sell multiple products and/or services (multiple deliverables). Revenue arrangements with multiple deliverables are evaluated to determine if the deliverables (items) can be divided into more than one unit of accounting. An item can generally be considered a separate unit of accounting if all of the following criteria are met:

§ The delivered item(s) has value to the customer on a standalone basis;

§ There is objective and reliable evidence of the fair value of the undelivered item(s); and

	5

§ If the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in the control of the Company.

If an arrangement contains more than one element, the arrangement consideration is allocated among separately identified elements based on relative fair values of each element.

Revenues related to contract manufacturing arrangement are recognized when performance obligations are substantially fulfilled. Revenues related to development contracts are recognized on proportionate performance basis. Customarily for contract manufacturing and development services, the Company receives upfront non-refundable payments which are recorded as deferred revenue. These amounts are recognized as revenues as obligations are fulfilled under contract manufacturing arrangement and as milestones are achieved for development arrangements.

When the Company receives advance payments from customers for sale of products, such payments are reported as advances from customers until all conditions for revenue recognition are met.

Allowances for sales returns are estimated and provided for in the year of sales. Such allowances are made based on the historical trends. The Company has the ability to make a reasonable estimate of the amount of future returns due to large volumes of homogeneous transactions and historical experience with similar types of sales of products. In respect of new products launched or expected to be launched, the sales returns are not expected to be different from the existing products as such products relate to categories where established products exist and are sold in the market. Further, the Company evaluates the sales returns of all the products at the end of each reporting period and necessary adjustments, if any, are made.

The Company estimates the decline in prices for some of its products based on the expected additional competition in the foreseeable future. The Company has the ability to make a reasonable estimate of the expected decline in prices and the claims in respect of such price decline to be made applicable to the inventory with the customers as on the date of reduction in price. A reserve is established for price decline claims on the inventory with the customers.

d) Income taxes

Income taxes are accounted for using the asset and liability method. The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to the Company. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. The measurement of deferred tax assets is reduced, if necessary, by a valuation allowance of any tax benefits of which future realization is uncertain.

The Company applies a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining, based on the technical merits, that the position will be more likely than not sustained upon examination. The second step is to measure the tax benefit as the largest amount of the tax benefit that is greater than 50% likely of being realized upon settlement. The Company includes interest and penalties related to unrecognized tax benefits within its provision for income tax expense.

e) Net income per share

Basic net income per share is computed by dividing net income by the weighted average number of shares outstanding during each period. Diluted net income per share is computed by dividing net income by the weighted average shares outstanding, as adjusted for the dilutive effect of common stock equivalents, which consist of stock options.

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The table below reflects basic and diluted net income per share for the:

	Six months ended September 30,				Three months ended September 30,
	2013		2012		2013		2012
Net income available for common shareholders (basic and dilutive)	$	13,870	$	20,911	$	6,732	$	9,805

Weighted average shares outstanding:
Basic		117,797		117,797		117,797		117,797
Effect of dilutive stock		750		750		750		750
Diluted		118,547		118,547		118,547		118,547

Earnings per share (in US Dollars)
Basic	$	0.12	$	0.18	$	0.06	$	0.08
Diluted	$	0.12	$	0.18	$	0.06	$	0.08

2	FINANCIAL INSTRUMENTS AND CONCENTRATION OF RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, trade receivables, advances and investments. The cash resources of the Company are invested with money market funds and banks after an evaluation of the credit risk. By their nature, all such financial instruments involve risk including the credit risk of non-performance by counter parties. In management’s opinion, as of September 30, 2013 and 2012 there was no significant risk of loss in the event of non-performance of the counter parties to these financial instruments.

As of September 30, 2013, the Company had loans outstanding in the principal amount of $ 30,000, that it had extended to HSL Holdings Inc.(“HSL Holdings”), a wholly-owned subsidiary of Jubilant Life Sciences Holdings Inc. (“Jubilant Holdings”), the holder, through its wholly-owned subsidiary, of approximately 82% of the Company’s common stock. A $ 10,000 loan was funded pursuant to a loan agreement that the Company entered into on November 23, 2011 (the “2011 HSL Loan Agreement”), with an original maturity date of November 30, 2012 that has since been extended to November 29, 2013. A $ 20,000 loan was funded pursuant to a loan agreement that the Company entered into on January 30, 2013 (the “2013 HSL Loan Agreement;” collectively the 2011 HSL Loan Agreement and the 2013 HSL Loan Agreement are referred to as the “HSL Loan Agreements”), with a maturity date of January 31, 2015. Jubilant Holdings has guaranteed the prompt payment and performance, when due, of all obligations of HSL Holdings under both HSL Loan Agreements.

In addition, as of September 30, 2013, we also had a loan outstanding in the principal amount of $15,000 (the “Draximage Loan”) that we had extended to Jubilant Draximage Inc. (“Draximage”), a wholly-owned subsidiary of Jubilant Pharma Ltd (“Jubilant Pharma”), which together with Jubilant Life Sciences Ltd. (“Jubilant”) owns Jubilant Holdings. $12,000 of the Draximage Loan was funded on August 23, 2013 pursuant to a loan agreement of the same date with the Company (the “Draximage Loan Agreement”). The remaining $3,000 of the Draximage Loan was funded, in accordance with the Draximage Loan Agreement, on September 30, 2013. The $15,000 Draximage Loan has a maturity date of August 22, 2014. Jubilant Pharma has guaranteed the prompt payment and performance, when due, of all obligations of Draximage under the Draximage Loan Agreement.

By their nature, such loans involve risks including credit risk of non-performance by HSL Holdings, Jubilant Holdings, Draximage and Jubilant Pharma. If HSL Holdings, Jubilant Holdings, Draximage and Jubilant Pharma were to not perform their respective obligations under the HSL Loan Agreements and the Draximage Loan Agreement the Company could lose some or all of its investments. In management’s opinion, as of September 30, 2013, there was no significant risk of loss as a result of such non-performance.

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The customers of the Company are primarily enterprises based in the United States and accordingly, trade receivables are concentrated in the United States. To reduce credit risk, the Company performs ongoing credit evaluation of customers. For the six months ended September 30, 2013, three customers had a 29%, 12% and 11% share in net product sales, respectively, and for the six months ended September 30, 2012 three customers had a 26%, 17% and 11% share, respectively, in net product sales; no other customer, individually accounted for more than 10% of net product sales during these periods. For the three months ended September 30, 2013, four customers had a 24%, 13%, 11% and 10% share in net product sales, respectively, and for the three months ended September 30, 2012 three customers had a 24%, 18% and 10% share, respectively, in net product sales; no other customer, individually accounted for more than 10% of net product sales during these periods. As of September 30, 2013, three customers had 23%, 23% and 11% shares, respectively, and as of September 30, 2012 three customers had 29%, 14% and 12% shares, respectively, in total trade receivables; no other customer individually accounted for more than 10% of the Company’s total trade receivables during these periods. For the six months ended September 30, 2013, two products collectively accounted for approximately 71% of net product sales and for the six months ended September 30, 2012, two products collectively accounted for approximately 77% of net product sales. For the three months ended September 30, 2013, two products collectively accounted for approximately 69% of net product sales and for the three months ended September 30, 2012, two products collectively accounted for approximately 76% of net product sales. A relatively small group of products, the raw materials for which are supplied by a limited number of vendors, represent a significant portion of net revenues. The maximum amount of loss due to credit risk that the Company would incur should the customer fail to perform is the amount of the outstanding receivable. The Company does not believe other significant concentrations of credit risk exist.

3	CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprises the following:

	As of September 30, 2013		As of March 31, 2013
Cash in hand	$	-	$	1
Balances with banks in current accounts		2,626		1,538
Balances with banks in money market funds*		409		4,103
	$	3,035	$	5,642

Cash balances on checking accounts and payroll accounts with the bank are insured by the Federal Deposit Insurance Corporation up to an aggregate of $250.

*As of September 30, 2013 and March 31 2013, cash equivalents include restricted cash of $25 and $27, respectively, which represents the amount of a security bond given by the Company to a municipal government authority in connection with the Company’s construction of building improvements and a parking lot at its manufacturing facility in Salisbury, Maryland.

4	ACCOUNTS RECEIVABLES

Accounts receivable as of September 30, 2013 and 2012 are stated net of allowance for doubtful receivables and provision for chargebacks, returns, rebates, discounts, and shelf stock (i.e. price protection) adjustments.

The activity in the allowance for doubtful accounts receivable is given below:

	Six months ended September 30,				Three months ended September 30,
	2013		2012		2013		2012
Balance at the beginning of the period	$	241	$	181	$	353	$	183
Charges to revenues and costs		112		2		-		-
Doubtful accounts written-off		(2)		-		(2)		-
Balance at the end of the period	$	351	$	183	$	351	$	183

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5	INVENTORIES

Inventories consist of the following amounts:

	September 30,		March 31,
	2013		2013
Raw materials	$	12,395	$	11,423
Work in progress		2,838		2,467
Finished goods*		14,074		9,881
Stores and spares		492		335
	$	29,799	$	24,106
Provision for slow moving / obsolete inventory		(736)		(675)
	$	29,063	$	23,431

* includes adjustments for market value.

The activity in the allowance for slow moving/obsolete inventory is given below.

	Six months ended September 30,				Three months ended September 30,
	2013		2012		2013		2012
Balance at the beginning of the period	$	675	$	161	$	1,090	$	208
Charges to revenues and costs, net *		1,686		61		665		14
Inventory written-off		(1,625)		-		(1,019)		-
Balance at the end of the period	$	736	$	222	$	736	$	222

*During the six months ended September 30, 2013 and 2012, the Company has written down inventory by $ 1,686 (net of $ 843 recovered from vendor), and $ 61 respectively, and during the three months ended September 30, 2013 and 2012, the Company has written down inventory by $ 665 (net of $ 343 recovered from vendor), and $ 14 respectively, resulting from the write-off of slow-moving and obsolete inventory. These amounts are included in the cost of revenues.

6	SHORT TERM BORROWINGS

Jubilant Cadista Pharmaceuticals Inc. (“Cadista Pharmaceuticals”) had a Revolving Credit Facility (the“SBNY Revolver”) from State Bank of India, New York (“SBNY”) for an amount up to $ 6,500 to meet its working capital requirements (the “SBNY Credit Agreement”). The interest rate on the SBNY Revolver was 6 months LIBOR plus 275 basis points. There were no short term loans under the SBNY Revolver as of September 30, 2013 or March 31, 2013. The Company elected not to renew the credit facility when it expired on November 18, 2012. All guarantees and SBNY’s security interest in all collateral securing this credit facility were fully released in April 2013 when the Company and SBNY fully resolved all outstanding balances of immaterial amounts with respect to the credit facility.

In February 2012, Cadista Pharmaceuticals entered into an agreement (the “ICICI Credit Facility Agreement”) with ICICI Bank, New York for its working capital requirements in an amount up to $ 8,500. The ICICI Credit Facility Agreement provided for interest to accrue on any revolving loans funded under the agreement at the three month LIBOR rate plus 3.75% per annum and on any amounts funded by ICICI Bank, New York with respect to discounting of customer invoices at a rate equal to the three month LIBOR rate plus 3% per annum.

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The ICICI Credit Facility Agreement had a one year term that expired on February 02, 2013. The Company elected not to pursue a renewal of the term, and the credit facility is now expired. There were no short term loans or other credit accommodations outstanding under the ICICI Credit Facility Agreement as of the date of its expiration or on March 31, 2013. ICICI Bank New York’s security interest in all collateral securing this credit facility has been released.

The details of average loan outstanding, average interest expense and weighted average rate of interest and interest rate on balance sheet date for loans and advances under both of the ICICI Credit Facility Agreement and the SBNY Credit Agreement are as follows:

Six months period ended	Average loan outstanding during the period (000’s)		Average interest expense during the period (000’s)			Average interest rate during the period
September 30, 2013		-		-			-
September 30, 2012		-	$	46	*		-

Three months period ended	Average loan outstanding during the period (000’s)		Average interest expense during the period (000’s)			Average interest rate during the period
September 30, 2013		-		-			-
September 30, 2012		-	$	21	*		-

The interest rate as of September 30, 2012 was 3.95%.

* Commitment charges on the unutilized credit line

7	DEPRECIATION AND AMORTIZATION

The Company’s underlying accounting records do not contain an allocation of depreciation and amortization between “cost of revenues,” “research and development charges,” “selling general and administration expenses.” As such, the charge for depreciation and amortization has been presented as a separate line item on the face of the consolidated statements of income.

8	INCOME TAXES

The Company estimates its effective tax rate (Federal and State) to be approximately 38.34% for the year ending March 31, 2014, as compared to 37.90% for the year ended March 31, 2013. The increase in effective tax rate is on account of lower tax depreciation and higher temporary differences estimated during the period. The Company regularly assesses the future realization of deferred taxes and whether a valuation allowance against certain deferred tax assets is warranted. For the six months ended September 30, 2013, the Company has recognized a tax expense of $8,625, comprised of $9,036 of current tax and ($411) of deferred tax expense; compared to a tax expense of $12,904, comprised of $12,612 of current tax and $292 of deferred tax expense for the comparable period of 2012. For the three months ended September 30, 2013, the Company has recognized a tax expense of $4,213, comprised of $4,522 of current tax and ($309) of deferred tax expense; compared to a tax expense of $6,057, comprised of $5,745 of current tax and $312 of deferred tax expense for the comparable period of 2012. We are a party to a tax sharing agreement (the “Tax Sharing Agreement”), with an effective date of October 1, 2011, with Jubilant Holdings. The Tax Sharing Agreement sets forth, among other things, each of the Company’s and Jubilant Holding’s obligations in connection with filing consolidated Federal, state and foreign tax returns. The agreement provides that current income tax (benefit) is computed on a separate return basis and members of the tax group shall make payments (or receive reimbursement) to or from Jubilant Holdings to the extent their income (loses and other credits) contribute to (reduce) the consolidated income tax expense. The consolidating companies are reimbursed for the net operating losses or other tax attributes they have generated when utilized in the consolidated returns. As of September 30, 2013 the Company was entitled to a refund of $230 for federal taxes and had a payment obligation of $240 (including carryover from previous year) towards state taxes to Jubilant Holdings under the tax sharing agreement. The Company makes tax-sharing payments to Jubilant Holdings equal to the taxes that the Company would pay (or receive) if it filed returns on a stand-alone basis. During the six months ended September 30, 2013 the Company paid $8,100 to Jubilant Holdings under the Tax Sharing Agreement, which was paid during the three months ended September 30, 2013.

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9	CHANGES IN STOCKHOLDERS’ EQUITY

There have been no changes in the statement of stockholders’ equity during the six months and three months ended September 30, 2013, other than the change in the balance of accumulated surplus due to the net income earned during the period.

10	SUBSEQUENT EVENTS

The Company evaluated all subsequent events that have occurred after the date of the accompanying financial statements and determined that there were no events or transactions occurring during this subsequent event reporting period which require recognition or disclosure in the Company’s consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information that management believes is relevant to an understanding of our results of operations and financial condition. The discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us,” or “our” refer to Cadista Holdings, Inc. and its subsidiary, Jubilant Cadista Pharmaceuticals Inc., and all amounts are in thousands United States Dollars.

Cautionary Note Regarding Forward-looking Statements

Certain statements in this Quarterly Report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including those concerning management’s expectations with respect to future financial performance, trends and future events. To the extent that any statements made in this Quarterly Report contain information that is not historical, such statements are essential forward-looking estimates and projections about us, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “scheduled,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. Risk factors that might affect such forward-looking statements include those set forth in Item 1A (“Risk Factors”) of our Annual Report on Form 10-K for the year ended March 31, 2013, and from time to time in our other filings with the SEC, including current reports on Form 8-K, and general industry and economic conditions. The forward-looking statements in this Quarterly Report statement speak only as of the date hereof and caution should be taken not to place undue reliance on any such forward-looking statements. We disclaim any obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Overview

We are engaged in the development, manufacture, sale and distribution of prescription generic pharmaceutical products in the United States through our wholly-owned subsidiary, Jubilant Cadista Pharmaceuticals Inc. (“Cadista Pharmaceuticals”). Pharmaceutical products commonly referred to as “generics” are the pharmaceutical and therapeutic equivalents of brand-name drug products and are usually marketed under their established non-proprietary drug names, rather than under a brand name. Generic pharmaceuticals are generally sold at prices significantly less than the brand product. Generic pharmaceuticals contain the same active ingredient and are of the same route of administration, dosage form, strength and indication(s) as brand–name pharmaceuticals already approved for use in the United States by the Food and Drug Administration (“FDA”). In order to gain FDA approval for a generic drug, we must file and the FDA must approve an abbreviated new drug application (“ANDA”) for such drug.

We sell our products in the United States primarily through pharmaceutical wholesalers and to national and regional pharmacy chains, mass merchandisers, government agencies and mail order pharmacies. Our sales are generated primarily by our own sales force, with the support of our senior management team, customer services, and distribution employees. For the six months ended September 30, 2013 and September 30, 2012 approximately 93% of our product sales revenue, were derived from products sold under our own product label. For the three months ended September 30, 2013 and September 30, 2012 approximately 90% and 93% of our product sales revenue, respectively, were derived from products sold under our own product label. The balance of our product sales revenue was comprised of private label product sales (which products are sold by a customer under its name). In addition to our product sales revenue, from time to time we provide drug development and manufacturing services to Jubilant Life Sciences Ltd. (“Jubilant”), the parent company of our principal stockholders, and third parties. For the six months ended September 30, 2013 and September 30, 2012, the revenues from these drug development services were $2 and Nil, respectively, with all of the revenue for the six month period ended September 30, 2013 being achieved during the three month period ended September 30, 2013.

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We filed our first ANDA with the FDA in May, 1996, and through September 30, 2013 we have filed a total of 19 ANDAs with the FDA. Our first ANDA approval was received from the FDA in October, 1997. We did not receive any new product approvals in the six months ended September 30, 2013. For the six month period ended September 30, 2013 we reported net revenue of $50,205 representing a decrease of 12% as compared to the six month period ended September 30, 2012 and for the three month period ended September 30, 2013 we reported net revenue of $24,548 representing a decrease of 10% as compared to the three month period ended September 30, 2012.

As of September 30, 2013, we marketed 17 products, all of which are prescription generic pharmaceutical products. Five of these products are marketed by us under a Master Supply Agreement that we entered into with Jubilant in May 2011, which was amended in December 2012 (as amended the “2011 Master Supply Agreement”). One of the 17 products currently marketed by us, Losartan Potassium Hydrochlorothiazide Tablets, the ANDA for which is owned by us and is not marketed under the 2011 Master Supply Agreement, we commenced marketing during the three months period ended June 30, 2013. As of September 30, 2013, our new product pipeline consisted of 21 products for which ANDAs were pending with the FDA (19 of which are ANDAs filed and owned by Jubilant with respect to which we have marketing rights under the 2011 Master Supply Agreement) and one additional product for which we have begun initial development activities, with the objective to assemble and file an ANDA with the FDA. In October 2013, Jubilant received FDA approval for one of these products, Bupropian Hydrochloride, which is the generic equivalent of Wellbutrin, SR.

We anticipate that our portfolio of marketed products will continue to grow as a result of launches of products under ANDAs that have already been approved, approval of our ANDAs (and Jubilant’s ANDAs covered under the 2011 Master Supply Agreement) currently under review by the FDA, approval of a future ANDA for the product that we currently have in an earlier stage of development, additional products as to which we acquire marketing rights pursuant to the 2011 Master Supply Agreement, our process of identifying new product development opportunities, and potentially acquiring FDA approved ANDAs from third parties. The specific timing of our new product launches is subject to a variety of factors, some of which are beyond our control; including the timing of FDA approval for ANDAs currently under review or that we file with respect to new products. The timing of these and other new product launches will have a significant impact on our results of operations.

The active compounds for our products, also called Active Pharmaceutical Ingredients (“APIs”) are purchased from specialized manufacturers, including Jubilant, and are essential to our business operations. Each individual API must be approved by the FDA as part of the ANDA approval process. API manufacturers are also regularly inspected by the FDA. We do not manufacture API for any of our products in our own facility. While we believe that there are alternative suppliers available for the API used in our products, any interruption of API supply or inability to obtain API used in our products, or any significant API price increase not passed on to our customers, could have a material adverse impact on our business operations and financial condition.

Results of Operations

	Six months ended September 30
	2013		2012		Change
	$000’s		$000’s		$000’s		Percent
Revenues		50,205		57,177		(6,972)		(12)	%
Costs of revenues (exclusive of depreciation and amortization)		23,590		20,225		3,365		17	%
Research and development expense (exclusive of depreciation and amortization)		9		250		(241)		(96)	%
Selling, general and administrative expense (exclusive of depreciation and amortization)		3,753		2,267		1,486		66	%
Depreciation and amortization		1,084		860		224		26	%
Income from operations		21,769		33,575		(11,806)		(35)	%
Other income (expense), net		726		240		486		203	%
Income before income tax		22,495		33,815		(11,320)		(33)	%
Income tax expense		8,625		12,904		(4,279)		(33)	%
Net income		13,870		20,911		(7,041)		(34)	%

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	Three months ended September 30
	2013		2012		Change
	$000’s		$000’s		$000’s		Percent
Revenues		24,548		27,303		(2,755)		(10)	%
Costs of revenues (exclusive of depreciation and amortization)		11,538		9,731		1,807		19	%
Research and development expense (exclusive of depreciation and amortization)		-		250		(250)		(100)	%
Selling, general and administrative expense (exclusive of depreciation and amortization)		1,913		1,150		763		66	%
Depreciation and amortization		542		446		96		22	%
Income from operations		10,555		15,726		(5,171)		(33)	%
Other income (expense), net		390		136		254		187	%
Income before income tax		10,945		15,862		(4,917)		(31)	%
Income tax expense		4,213		6,057		(1,844)		(30)	%
Net income		6,732		9,805		(3,073)		(31)	%

Revenues

We generate revenue principally from the sale of generic pharmaceutical products, which include a variety of products and dosage forms. In addition to our product sales revenue, from time to time we provide drug development and manufacturing services to Jubilant and third parties. For the six months ended September 30, 2013 and September 30, 2012, the revenues from these drug development services were $2 and Nil, respectively, with all of the revenue for the six month period ended September 30, 2013 being achieved during the three month period ended September 30, 2013.

Revenues for the six months ended September 30, 2013 decreased 12% or $6,972 to $50,205 compared to revenues of $57,177 from the corresponding period of 2012. The decrease in revenues is mainly attributable to decrease in sales of Methylprednisolone, Meclizine and Terazosin and a small increase in sales of Prednisone, Cyclobenzaprine and the other products that we sell pursuant to the 2011 Master Supply Agreement, Donepezil, Pantoprazole, Olanzapine ODT and Valacyclovir.

Revenues for the three months ended September 30, 2013 decreased 10% or $2,755 to $24,548 compared to revenues of $27,303 from the corresponding period of 2012. The decrease in revenues is mainly attributable to decrease in sales of Methylprednisolone, Meclizine and Terazosin and a small increase in sales of Prednisone, Cyclobenzaprine and the other products that we sell pursuant to the 2011 Master Supply Agreement, Donepezil, Pantoprazole, Olanzapine ODT and Valacyclovir.

Total revenues of our top selling products were as follows:

	Six months ended
	September 30
	2013		2012		Change		%
	$000’s		$000’s		$000’s
Product
Methylprednisolone tablets		29,952		37,308		(7,356)		(19.7)
Meclizine		5,608		6,769		(1,161)		(17.1)
Other product revenues		14,643		13,100		1,543		11.8
Net product sales		50,203		57,177		(6,974)		(12.2)
Other revenues		2		-		2		—
Total revenues		50,205		57,177		(6,972)		(12.2)

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	Three months ended
	September 30
	2013		2012		Change		%
	$000’s		$000’s		$000’s
Product
Methylprednisolone tablets		14,289		17,438		(3,149)		(18.1)
Meclizine		2,709		3,237		(528)		(16.3)
Other product revenues		7,548		6,628		920		13.9
Net product sales		24,546		27,303		(2,757)		(10.1)
Other revenues		2		-		2		-
Total revenues		24,548		27,303		(2,755)		(10.1)

During the six month period ended September 30, 2013, our top two products (Methylprednisolone and Meclizine) accounted for approximately 71% of our total net product sales and approximately 88% of our total consolidated gross margins for such six month period. During the three month period ended September 30, 2013, our top two products (Methylprednisolone and Meclizine) accounted for approximately 69% of our total net product sales and approximately 86% of our total consolidated gross margins for such three month period.

We launched Methylprednisolone tablets prior to July 2005. We sell Methylprednisolone tablets, which are the generic equivalent of Medrol®, in four strengths (4 mg, 8 mg, 16 mg, and 32 mg) and a total of two pack sizes for one strength and one pack size for the other three strengths. We believe that during each of the six month periods ended September 30, 2013 and 2012, there were at least four competitors supplying this generic product in the U.S. market in 4mg and 8 mg strengths. We do not believe that there are any competitors currently supplying this generic product in 16 mg or 32 mg strengths in the U.S. market. Methylprednisolone tablets are a steroid product. For the six month and three month periods ended September 30, 2013 we realized lower revenues from Methylprednisolone products as compared to the six month and three month periods ended September 30, 2012, respectively, primarily as a result of more competitive pricing in the market. There can be no assurance that we are aware of all activities in this market or plans of our competitors. There can be no assurance that new competitors will not commence supplying this generic product in the future. Any new competition could result in further reduction in unit price, and perhaps sales volume, which could negatively impact our revenue and gross margin in the future.

We launched Meclizine tablets in June 2010. We sell Meclizine tablets, which are the generic version of Antivert®, in 12.5 mg and 25 mg strengths and two pack sizes for each strength. Since our launch of Meclizine tablets, we believe that there have been two competitors supplying this generic product in the U.S. market through the end of our last fiscal year. Two additional competitors received FDA approval during our last fiscal year. We believe, of these two additional competitors, one has entered the market in the quarter ended June 30, 2013. We believe that the new competition has resulted in significant declines in our sales volume and unit price, and may also negatively impact our revenues and gross margins in future periods.

Our other product revenues (“Other Product Revenues”), in addition to sales from our top two products, during the six month ended September 30, 2013 consisted of sales of Terazosin capsules, Lamotrigine tablets, Cyclobenzaprine tablets, Oxcarbazepine tablets, HCTZ tablets and capsules, Prednisone tablets, Prochlorperazine tablets, Alendronate tablets, Donepezil tablets, Pantoprazole DR tablets, Risperidone ODT tablets, Valacyclovir tablets, Olanzapine ODT tablets and Losartan Potassium Hydrochlorothiazide tablets. Our revenues from sales of these other products increased during the six month and three month periods ended September 30, 2013 compared to the corresponding periods of 2012. Donepezil tablets, Pantoprazole DR tablets, Risperidone ODT tablets, Valacyclovir tablets and Olanzapine ODT tablets are marketed pursuant to the 2011 Master Supply Agreement with Jubilant; we commenced marketing Donepezil tablets in the quarter ended September 30, 2011 and commenced marketing Risperidone ODT, Pantoprazole DR tablets, Valacyclovir tablets and Olanzapine ODT tablets, during the quarters ended June 30, 2012, September 30, 2012, December 31, 2012 and March 31, 2013, respectively. The increase in Other Product Revenues for the six months ended September 30, 2013 compared to the corresponding period of 2012 was primarily attributable to an aggregate increase of $6,251 from the sales of Cyclobenzaprine tablets, Prednisone tablets, Donepezil tablets, Alendronate tablets, Pantoprazole DR tablets, Valacyclovir tablets, Olanzapine ODT tablets and Losartan Potassium Hydrochlorothiazide tablets offset by a reduction in the revenues generated from our sales of Terazosin capsules, Lamotrigine tablets, Prochlorperazine tablets, Oxcarbazepine tablets, Risperidone ODT tablets and HCTZ tablets and capsules. The increase in Other Product Revenues for three months ended September 30, 2013 compared to the corresponding period of 2012 was primarily attributable to an aggregate increase of $3,661 from the sales of Cyclobenzaprine tablets, Prednisone tablets, Oxcarbazepine tablets, Donepezil tablets, Pantoprazole DR tablets, Valacyclovir tablets, Olanzapine ODT tablets and Losartan Potassium Hydrochlorothiazide tablets offset by a reduction in the revenues generated from our sales of Terazosin capsules, Lamotrigine tablets, Prochlorperazine tablets, Alendronate tablets, Risperidone ODT tablets and HCTZ tablets and capsules. We believe that there is significant competition with respect to each of these generic products and that our pricing and gross margins for these products are always under pressure.

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Gross Revenues to Total Revenue Deductions

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the results of operations during the reporting periods. The Company’s most significant estimates relate to the determination of sales reserves, sales return, price protection and allowances for accounts receivables and accrued liabilities, determination of useful lives for property, plant and equipment and intangible assets, and other long lived assets for impairment and realizability of deferred tax assets. Management believes that the estimates used in the preparation of the consolidated financial statements are prudent and reasonable. Actual results could differ from these estimates. Appropriate changes in estimates are made as management becomes aware of changes in circumstances surrounding the estimates.

Revenue from sale of goods is recognized when significant risks and rewards in respect of ownership of the products are transferred to the customer and when the following criteria are met:

§ Persuasive evidence of an arrangement exists;

§ The price to the buyer is fixed and determinable; and

§ Collectability of the sales price is reasonably assured.

As customary in the pharmaceutical industry, our gross product sales are subject to a variety of deductions in arriving at reported net product sales. When we recognize revenue from the sale of our products, an estimate of sales returns and allowances (“SRA”) is recorded which reduces product sales. Accounts receivable and/or accrued liabilities are also reduced and/or increased by the SRA amount. These adjustments include estimates for chargebacks, rebates, cash discounts and returns and other allowances, including shelf stock adjustments (price protection). These provisions are estimated based on historical payment experience, historical relationship to revenues, estimated customer inventory levels and current contract sales terms with direct and indirect customers. The estimation process used to determine our SRA provision has been applied on a consistent basis and no material adjustments, other than for shelf stock adjustments and for chargebacks, have been necessary to increase or decrease our reserves for SRA as a result of a significant change in underlying estimates. Historically, until the quarter ended September 30, 2011, the Company did not experience any material shelf stock adjustments (i.e. credits issued to a customer, in accordance with specific terms agreed to with the customer, to reflect price reductions and based upon the amount of the product the customer has in its inventory). Accordingly, the Company did not create any reserve for the shelf stock adjustments. As a result of the Company’s currently selling certain products where the Company expects increased competition resulting in lower prices, the Company has assessed that there is a greater chance that it will experience shelf stock adjustments than it has in the past and has established a reserve for these adjustments, which is referred to as the “Price Protection Reserve”. Historically, the Company did not include in its reserve for chargebacks an estimation of charges by retail drug stores for the difference between the price paid to a wholesaler and our negotiated contract price with the retailer. Commencing with our fiscal year ended March 31, 2013, we have included the estimate for these charges as the Company has assessed that there is a greater chance that it will incur these charges than in the past.

We use a variety of methods to assess the adequacy of our SRA reserves to ensure that our financial statements are fairly stated. This includes periodic reviews of customer inventory data, customer contract programs and product pricing trends to analyze and validate the SRA reserves. The Company does not expect future payments of SRA to materially exceed our current estimates. However, if future SRA payments were to materially exceed our estimates, such adjustments may have a material adverse impact on our financial position, results of operations and cash flows.

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Our gross revenues for the six month and three month periods ended September 30, 2013 and September 30, 2012, before deductions for chargebacks, rebates and incentive programs (including rebates paid under federal and state government Medicaid drug reimbursement programs), sales returns and other sales allowances were as follows (in $ thousands):

	Six months ended						Three months ended
	September 30						September 30
	2013			2012			2013			2012
Description	$000’s			$000’s			$000’s			$000’s
Gross revenues		73,147			71,797			41,137			33,886
Chargebacks		14,951			7,003			11,927			3,304
Rebates, fees, incentives and cash discounts		5,711			5,000			3,505			1,579
Medicaid/ISA fees		719			657			314			174
Returns		1,242			627			435			276
Price protection reserve		319			1,333			408			1,250
Net product sales		50,205			57,177			24,548			27,303
Net to Gross %		68.6	%		79.6	%		59.7	%		80.6	%

The following tables summarize the roll forward for the six month and three month periods ended September 30, 2013 and September 30, 2012 in the accounts affected by the estimated provisions described below (in $ thousands):

	For the six months ended September 30, 2013
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	Provision (reversal) recorded for prior period sales(1)	Credits processed		Ending balance
Chargebacks	1,963	14,951	-	12,476	*	4,438
Rebates and incentive programs	2,751	5,185	-	3,366		4,570
Returns	1,280	1,242	-	1,043		1,479
Cash discounts and other	578	1,245	-	1,218		605
Price protection reserve	1,174	430	(111)	1,142		351
Total	7,746	23,053	(111)	19,245		11,443

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	For the six months ended September 30, 2012
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	Provision (reversal) recorded for prior period sales(1)	Credits processed	Ending balance
Chargebacks	1,427	7,003	-	5,901	2,529
Rebates and incentive programs	4,264	4,431	-	5,293	3,402
Returns	1,807	627	-	1,224	1,210
Cash discounts and other	455	1,226	-	1,221	460
Price protection reserve	1,354	1,333	-	1,248	1,439
Total	9,307	14,620	-	14,887	9,040

	For the three months ended September 30, 2013
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	Provision (reversal) recorded for prior period sales(1)	Credits processed		Ending balance
Chargebacks	1,733	11,927	-	9,222	*	4,438
Rebates and incentive programs	2,569	3,123	-	1,122		4,570
Returns	1,406	435	-	362		1,479
Cash discounts and other	516	696	-	607		605
Price protection reserve	705	408	-	762		351
Total	6,929	16,589	-	12,075		11,443

	For the three months ended September 30, 2012
Accounts receivable reserves	Beginning balance	Provision recorded for current period sales	Provision (reversal) recorded for prior period sales(1)	Credits processed	Ending balance
Chargebacks	1,865	3,304	-	2,640	2,529
Rebates and incentive programs	5,068	1,160	-	2,826	3,402
Returns	1,490	276	-	556	1,210
Cash discounts and other	507	593	-	640	460
Price protection reserve	1,353	1,250	-	1,164	1,439
Total	10,283	6,583	-	7,826	9,040

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⁽¹⁾ Unless specific in nature, the amount of provision or reversal of reserves related to prior periods for chargebacks is not determinable on a product or customer specific basis; however, based upon historical analysis and analysis of activity in subsequent periods, we have determined that our chargeback estimates remain reasonable.

‘* Effective July 1, 2013, one of our wholesale customers changed its pricing from Net to Wholesale Acquisition Cost (“WAC”). Based on the inventory with the wholesaler on that date, a credit of $1,810 was given to the Company by the wholesaler as negative chargeback. Corresponding chargeback claims were made by the wholesaler as they liquidated the opening inventory under the eligible program. The credits processed amounting to $12,476 and $9,222 during the six month and three month period ended September 30, 2013, respectively, is net of negative chargeback of $1,810.

Cost of Revenues

Cost of revenues include our production and packaging costs, third party acquisition costs for materials supplied by others, inventory reserve charges and shipping and handling costs incurred by us to transport products to customers. Cost of revenues does not include costs for amortization, including for acquired product rights or other acquired intangibles, nor depreciation, including with respect to our facility or equipment.

Cost of revenues increased 17% or $3,365 to $23,590 in the six months ended September 30, 2013 compared to $20,225 for the comparable period of 2012. This increase in cost of revenues was mainly attributable to increase in volumes of products with higher manufacturing cost/ cost of purchased products, an increase in production related payroll and write off of short dated inventories.

Our cost of revenues as a percentage of net revenues in the six months ended September 30, 2013, increased 12% from the six months ended September 30, 2012, increasing from 35% in the six months ended September 30, 2012 to 47% in the six months ended September 30, 2013. The majority of such 12% increase was attributable to the higher percentage sales of products with relatively low margins due to higher volumes of products with higher manufacturing cost / cost of purchased products and price erosion with respect to other lower manufacturing cost products during the six months ended September 30, 2013.

Cost of revenues increased 19% or $1,807 to $11,538 in the three months ended September 30, 2013 compared to $9,731for the comparable period of 2012. This increase in cost of revenues was mainly attributable to increase in volumes of products with higher manufacturing cost/ cost of purchased products and an increase in production related payroll and write off of short dated inventories.

Our cost of revenues as a percentage of net revenues in the three months ended September 30, 2013, increased 11% from the three months ended September 30, 2012, increasing from 36% in the three months ended September 30, 2012 to 47% in the three months ended September 30, 2013. The majority of such 11% increase was attributable to the higher percentage sales of products with relatively low margins due to higher volumes of products with higher manufacturing cost/ cost of purchased products and price erosion with respect to other lower manufacturing cost products during the quarter ended September 30, 2013.

Research and Development Expenses

Research and development (“R&D”) expenses consist mainly of personnel-related costs, API costs, contract research and bio-study costs associated with the development of our products. R&D expenses do not include any amortization or depreciation costs.

R&D expenses decreased $241 to $9 for the six months ended September 30, 2013 compared to $250 in the corresponding period of 2012 and decreased $250 to $Nil for the three months ended September 30, 2013 compared to $250 in the corresponding period of 2012. This decrease was primarily a result of $250 invoiced under the 2005 Supply Agreement by Jubilant to the Company for two pre-ANDAs, ANDAs for which were approved by the FDA during the quarter ended September 30, 2012 against the $9 of expenses during the six month ended September 30, 2013 (all of which was incurred during the quarter ended June 30, 2013) for the new products which the Company is exploring.

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Selling, General and Administrative Expenses

Selling, general and administrative (“SG&A”) expenses consist mainly of personnel-related costs, advertising and promotion costs, professional services costs and insurance and travel costs. SG&A expenses do not include any amortization or depreciation costs.

SG&A expenses increased 66% or $1,486 to $3,753 for six months ended September 30, 2013 compared to $2,267 in the corresponding period of 2012. The increase in expense was the result of increase of $801 in legal and professional charges, $147 in FDA user fees and $126 in payroll and benefits offset by a decrease of $40 in bank charges.

SG&A expenses increased 66% or $763 to $1,913 for three months ended September 30, 2013 compared to $1,150 in the corresponding period of 2012. The increase in expense was the result of increase of $471 in legal and professional charges, $43 in FDA user fee and $105 in payroll and benefits offset by a decrease of $21 in bank charges.

Depreciation and Amortization

Depreciation and amortization consists of depreciation on our real and personal property and amortization on an ANDA that we acquired in 2002.

Depreciation and amortization increased 26% or $224 to $1,084 for the six months ended September 30, 2013 compared to $860 in the corresponding period of 2012 and increased 22% or $96 to $542 for the three months ended September 30, 2013 compared to $446 in the corresponding period of 2012. This increase is due to the acquisition of capital assets, we acquired during our last fiscal year on which we claim depreciation in the current period and due to change in useful life of some of the assets from 4 years to 1 year.

Other income (expense), net

Other income (expense), net consists of interest and other finance costs, offset against interest income.

Other income, net increased 203% or $486 to $726 for the six month ended September 30, 2013 compared to $240 in the corresponding period of 2012. This increase was primarily the result of an increase in interest income as a result of a $10,000 loan given to our affiliate company, HSL Holdings Inc. (“HSL Holdings”), which we funded on November 25, 2011 (the “2011 HSL Loan”), that bears interest a rate equal to five percent (5%) per annum and interest income on a $20,000 loan we provided to HSL Holdings on January 30, 2013 that bears interest at a rate equal to four percent (4%) per annum (the “2013 HSL Loan;” collectively, the 2011 HSL Loan together with the 2013 HSL Loan are referred to as the “HSL Loans”). In addition, on August 23, 2013 we entered into a loan agreement with our affiliate, Jubilant Draximage Inc. (“Draximage”), pursuant to which we provided a $15,000 loan to Draximage (the “Draximage Loan”), which was funded in two installments. A $12,000 installment was funded on August 23, 2013 and a $3,000 installment was funded on September 30, 2013. The Draximage Loan bears interest at an initial rate of four percent (4%) per annum, which interest rate may be reset on each September 1 and March 1, commencing with March 1, 2014, based upon the increase in the Six Month Libor Rate over such rate on August 15, 2013 (subject to a floor of four percent (4%) per annum and a cap of seven percent (7%) per annum).

Other income, net increased 187% or $254 to $390 for the three month ended September 30, 2013 compared to $136 in the corresponding period of 2012. This increase was primarily the result of lower interest cost because of no borrowings under our credit facilities, and an increase in interest income on the HSL Loans and Draximage Loan.

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Income Tax Expense

The income tax expense decreased by $4,279 to $8,625 for the six month period ended September 30, 2013 compared to $12,904 in the corresponding period of 2012 and for the three month period ended September 30, 2013, the tax expense decreased by $1,844 to $4,213 as compared to $6,057 in the corresponding period of 2012. The income tax expense represents the current and deferred tax due to profits made by us and our future prospects. As our profits decreased during the six month and three month periods ended September 30, 2013 as compared to profits for the corresponding periods of last year, the current tax expense recognized in these periods decreased.

During the quarter ended December 31, 2011, we entered into a tax sharing agreement with Jubilant Life Sciences Holdings, Inc. (“Jubilant Holdings”), with an effective date of October 1, 2011 (the “Tax Sharing Agreement”). The Tax Sharing Agreement sets forth, among other things, each of the Company’s and Jubilant Holding’s obligations in connection with filing consolidated Federal, state and foreign tax returns. The agreement provides that current income tax expense (or benefit) is computed on a separate return basis and members of the tax group shall make payments (or receive reimbursement) to or from Jubilant Holdings to the extent their income (or losses and other credits) contribute to (or reduce) the consolidated income tax expense. The consolidating companies are reimbursed for the net operating losses or other tax attributes they have generated when utilized in the consolidated returns.

As of September 30, 2013, the Company was entitled to a refund of $230 for federal taxes and had a payment obligation of $240 (including carryover from previous year) towards state taxes to Jubilant Holdings under the tax sharing agreement. The Company makes tax-sharing payments to Jubilant Holdings equal to the taxes that the Company would pay (or receive) if it filed returns on a stand-alone basis. During the six months ended September 30, 2013 the Company paid $8,100 to Jubilant Holdings under the Tax Sharing Agreement, all of which was paid during the three months ended September 30, 2013.

Liquidity and Capital Resources

Our primary uses of cash are to fund working capital requirements, product development costs, and operating expenses. Historically, we have funded our operations primarily through cash flow from operations, private placements of equity securities to, and loan advances from, Jubilant including its affiliates and borrowings under our term loan and revolving credit facilities with our banks. As of September 30, 2013, we had no outstanding borrowings under bank credit facilities, and we elected not to renew the $6,500 revolving credit facility we had with State Bank of India, New York Branch (“SBNY”), which expired on November 18, 2012, and the $8,500 revolving credit facility we had with ICICI Bank NY (“ICICIBNY”), which expired on February 2, 2013. As of September 30, 2013, our principal sources of liquidity consisted of cash and cash equivalents (excluding restricted cash of $25) of $3,010. In addition, the $30,000 principal amount of loans we had outstanding as of September 30, 2013 to our affiliate company, HSL Holdings, and $15,000 to another affiliate company, Draximage, are other potential sources of liquidity. $25,000 principal amount of such loans is repayable upon 30 days prior notice and $20,000 principal amount of such loans is repayable upon 60 days prior notice.

Funding Requirements

Our future capital requirements will depend on a number of factors, including: the continued commercial success of our existing products; launching five products that are represented by three ANDAs owned by us that have been approved and the two ANDAs owned by us that are pending approval by the FDA as of September 30, 2013; the development of one new product that is currently being developed by us and for which an ANDA is expected to be filed with the FDA for review; the launch of additional products, that we market pursuant to our 2011 Master Supply Agreement with Jubilant, the launch by Jubilant of certain of our products outside of the United States pursuant to the master supply agreement that we entered into with Jubilant in December 2012 (pursuant to which Jubilant acquired exclusive marketing rights to nine of our products in 27 countries outside of the United States); and successfully identifying and sourcing other new product opportunities.

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Based on our existing business plan, we believe our existing sources of liquidity as of September 30, 2013 will be sufficient to fund our planned operations, including the continued development of our product pipeline, for at least the next 12 months. However, we may require additional funds earlier than we currently anticipate in the event we change our business plan or encounter unexpected developments, including unforeseen competitive conditions within our product markets, changes in the regulatory environment, the loss of key relationships with suppliers or customers.

If required, additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities or by selling convertible debt securities, further dilution to our existing stockholders may result. To the extent our capital resources are insufficient to meet our future capital requirements, we will need to finance our future cash needs through public or private equity offerings, debt financings or collaboration arrangements. Some of these transactions may be with Jubilant and its affiliates and some may be with third parties.

If adequate funds are not available, we may be required to terminate, significantly modify or delay the development or commercialization of new products. We may elect to raise additional funds even before we need them if the conditions for raising capital are favorable.

Cash Flows

On September 30, 2013, cash and cash equivalents (excluding restricted cash $25) on hand totaled $3,010, working capital (excluding cash and cash equivalents) totaled $67,158 and our current ratio (current assets to current liabilities) was approximately 5.80 to 1. Our working capital as of September 30, 2013 increased approximately $15,701 to $67,158 compared to our working capital as of March 31, 2013 (which was $51,457) primarily because of increase in inventories and due from related parties, offset by increase in liabilities.

The following tables summarize our cash flows provided by/(used in) operating, investing and financing activities for the six months ended September 30, 2013 and September 30, 2012.

	For the six months ended September 30, (in thousands)
	2013		2012
Net cash provided by/(used in):
Operating activities		13,756		19,352
Investing activities		(16,363)		(9,514)
Financing activities		-		-
Net increase (decrease) in cash and cash equivalents	$	(2,607)	$	9,838

Operating activities: Cash flows from operations represent net income adjusted for certain non-cash items and changes in assets and liabilities. Net cash provided by operating activities was $13,756 for the six month period ended September 30, 2013, compared to $19,352 for the comparable period of 2012. This net decrease in cash in the six month period of our 2014 fiscal year compared to the corresponding period of our 2013 fiscal year was primarily due to lower net income compared to the comparable period of our 2013 fiscal year, and an increase in inventories offset by an increase in dues to related parties. Inventories in the six month period of our 2013 fiscal year increased causing a $5,632 use of cash. There is a cash increase of $1,196 on account of accounts receivable, including due from related parties. Prepaid expenses and other current assets increased by $152 during the six month period ended September 30, 2013, causing a negative cash adjustment, as compared to an increase of $134, and negative cash adjustment for the corresponding period of our 2013 fiscal year.

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Investing activities: Investing cash flows consist primarily of capital expenditures and proceeds from sales of property, plant or equipment and a short term loan, given to an affiliate company. Net cash used in investing activities was $16,363 for the six months ended September 30, 2013, compared to $9,514 for the six month period ended September 30, 2012. During the six month period ended September 30, 2013, capital expenditures primarily consisted of the purchase of equipment for the manufacture of new products to be installed in the portion of our facility that we modified during our last fiscal year and during the six month period ended September 30, 2012, capital expenditures primarily consisted of the purchase of equipment to replace old equipment and modification of the building and purchase of 6.6 acres of land anticipating future growth at our Maryland facility. During the six month ended September 30, 2013, the Company funded a loan of $15,000 to an affiliate company, Draximage, and during the six month period ended September 30, 2012, the Company made short term investments (term deposits) of $5,000 with a maturity period of one year from the date of creation.

Financing activities: Financing cash flows consist primarily of borrowings and repayments of debt. There was no cash provided from or used with respect to financing activities during either of the six month periods ended September 30, 2013 or September 30, 2012.

Bank Facilities

Cadista Pharmaceuticals had a Revolving Credit Facility (the “SBNY Revolver”) from SBNY for an amount up to $6,500 to meet its working capital requirements (the “SBNY Credit Agreement”). We elected not to renew the credit facility when it expired on November 18, 2012 and there was no loan outstanding on the expiration date or on March 31, 2013 or on September 30, 2013. All guarantees and SBNY’s security interest in all collateral securing this credit facility have been released. The interest rate on the SBNY Revolver was 6 months LIBOR plus 275 basis points.

On February 2, 2012 Cadista Pharmaceuticals entered into a credit facility agreement (the “ICICI Bank Credit Facility Agreement”) with ICICI Bank NY, providing for borrowings and other credit accommodations of up to $8,500. The ICICI Credit Facility Agreement provided for interest to accrue on any revolving loans funded under the agreement at the three month LIBOR rate plus 3.75% per annum and on any amounts funded by ICICI Bank NY with respect to discounting of customer invoices at a rate equal to the three month LIBOR rate plus 4% per annum.

The ICICI Credit Facility Agreement had a one year term that expired on February 2, 2013. We elected not to pursue a renewal of the term, and the credit facility is now expired. There were no short term loans or other credit accommodations outstanding under the ICICI Credit Facility Agreement on the date of its expiration or on March 31, 2013 or on September 30, 2013. ICICI Bank NY’s security interest in all collateral securing this credit facility has been released.

Off-Balance Sheet Arrangements

We have not created, and are not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating our business. We do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, net revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

Our critical accounting policies are set forth in the Annual Report on Form 10-K for our fiscal year ended March 31, 2013, which contains our audited financial statements for our fiscal year ended March 31, 2013. There has been no change, update or revision to our critical accounting policies subsequent to our filing of such Form 10-K. The application of these accounting policies involves the exercise of judgment and use of assumptions as to future uncertainties, and as a result, actual results could differ from these estimates.

Recent Accounting Pronouncements

See Note 1(b), “Summary of Significant Accounting Policies – Recent Accounting Pronouncements,” for a discussion of new accounting guidance. The Company believes that there has not been and there will be no material impact of the adoption of these new accounting pronouncements on its financial statements.

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Item 3. Quantitative and Qualitative Disclosure about Market Risk

At September 30, 2013, we had cash and cash equivalents of $3,035, inclusive of restricted cash. These amounts are held primarily in cash and money market funds. We do not enter into investments for trading or speculative purposes. The $10,000 HSL Loan that we funded in November 2011 (the “2011 HSL Loan”), that was outstanding as of September 30, 2013, bears interest at a rate equal to five percent (5%) per annum, has a current maturity date of November 29, 2013, and payment may be demanded at any time by us upon 30 days’ prior notice. The $20,000 HSL loan that we funded in January 2013 (the “2013 HSL Loan”; collectively, the 2011 HSL Loan and the 2013 HSL Loan are referred to as the “HSL Loans”), bears interest at a rate equal to four percent (4%) per annum, has a current maturity date of January 31, 2015 and payment may be demanded by us at any time upon 60 days’ notice. The $15,000 Draximage Loan, we funded during the quarter ended September 2013, has a current maturity date of August 22, 2014 and payment may be demanded at any time by us upon 30 days’ prior notice. The Draximage Loan bears interest at an initial rate of four (4%) per annum, which interest rate may be reset on each September 1 and March 1, commencing March 1, 2014, based upon the increase in the Six Month Libor Rate over such rate on August 15, 2013 (subject to a floor of four percent (4%) per annum and a cap of seven percent (7%) per annum). Due to the short-term nature of our cash and cash equivalent investments and the 2011 HSL Loans and the Draximage Loan and the demand features of the HSL Loans and Draximage Loan, we believe that we do not have any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates. However, a change in prevailing interest rates may cause the value of our HSL Loans and the Draximage Loan to fluctuate.

While we operate primarily in the U.S., we do have foreign currency considerations. We generally incur sales and pay our expenses in U.S. Dollars. All of our vendors that supply us with API are located in a number of foreign jurisdictions, including India, and we believe they generally incur their respective operating expenses in local currencies. As a result, these suppliers may be exposed to currency rate fluctuations and experience an effective increase in their operating expenses in the event their local currency fluctuate vis-à-vis the U.S. Dollar. In this event, such suppliers may elect to stop providing us with these services or attempt to pass these increased costs back to us through increased prices for API sourcing that they supply to us. Historically we have not used derivatives to protect against adverse movements in currency rates.

We do not have any foreign currency or any other material derivative financial instruments.

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance that information is recorded, processed, summarized and reported accurately and on a timely basis in the Company’s periodic reports filed with the SEC. Based upon such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective to provide such reasonable assurance. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

(b) Changes in internal controls over financial reporting.

We have implemented an enterprise resource planning system (“ERP”) system, developed by SAP, to replace certain of our legacy computer systems. The system became operational during the quarter ended December 31, 2012. We have been putting in place several changes to internal controls and procedures in conjunction with the implementation, as is expected with a major system implementation. Other than changes required by the implementation of the SAP ERP system, none of which materially impair or significantly alter the effectiveness of the internal controls over financial reporting, there were no material changes in internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially, or is reasonably likely to materially affect, the effectiveness of our internal controls over financial reporting.

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PART II

OTHER INFORMATION

Item 6. Exhibits

	10.1	Loan Agreement, made as August 23, 2013, between Jubilant Draximage Inc. and Jubilant Cadista Pharmaceuticals Inc., together with the Guaranty of Jubilant Pharma Limited.

	31.1	Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

	31.2	Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

	32.1	Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	101.1	The following materials from Cadista’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) notes to the Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date : November 13, 2013	CADISTA HOLDINGS INC.

	By :	/s/ Scott Delaney
		Scott Delaney
		Chief Executive Officer

	By :	/s/ Kamal Mandan
		Kamal Mandan
		Chief Financial Officer

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EXHIBIT INDEX

EXHIBIT NO.		DESCRIPTION

10.1		Loan Agreement, made as August 23, 2013, between Jubilant Draximage Inc. and Jubilant Cadista Pharmaceuticals Inc., together with the Guaranty of Jubilant Pharma Limited.

31.1		Certification of Periodic Report by Chief Executive Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

31.2		Certification of Periodic Report by Chief Financial Officer pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934.

32.1		Certification of Periodic Report by Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1		The following materials from Cadista’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2013 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) notes to the Condensed Consolidated Financial Statements.

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Cadista Holdings Inc. - FORM 10-Q - November 14, 2013

Attached files

Cadista Holdings Inc. Reports